Objective of Housing Policy

Summary

Landless housing is a concept where individuals purchase housing but land is never bought or sold, so that house prices correlated only with the material/labour cost of constructing the house. The idea centers around the concept that price should reflect the quality of the good. Location, inextricably tied with any housing built on top of it, would affect price and so this concept breaks that pricing model. Then, it may be asked, would that make sense?

As an extension to the idea that the quality of housing is the only determinant of price and not the location, the objective of housing policy is explored. In reality, most people would not explore history for economic policies but the concept of private land ownership has been one of the most significant factors in destroying large empires in the past. From the Roman Empire to the Qing Dynasty, the most successful societies have been ones that heavily regulated and provisioned housing on intelligent policy, carried out by a competent bureaucracy. Private landownership typically led to the "Crassus" problem, where a single person could own most of the land and force large swathes of the population into poverty.

Long Description

This article considers these housing policy objectives:

• Maximize Number/Quality of Land Owners
• Matching Individuals with Desired Housing
• Equally Distributing Social Services
• Avoiding Economic or Social segregation

Maximize Number/Quality of Land Owners

It's preferable for people and for the government tax system for everyone to be land owners, that it is affordable to be so and that they are of the highest quality possible. All of this, for the least amount of resources expended. This is the primary reason for eliminating land trade; a lot of money would go into purchasing land but other than this it does not translate into real material wealth.

Essentially, money that goes into the sale of land does not convert into anything. It does not improve the land; it only gives the right to improve land. It does not produce any products; in fact, it takes away available money from purchasing luxury goods. It does not make use of the land; a highly free land market means that people are also free to purchase land and then do nothing with it.

So, the elimination of the land market frees up money for development and luxuries, a portion of which will translate into superior housing (either more space and/or higher build quality). At worst, there is no decrease in quality/quantity of land owners since all housing is strictly cheaper, however if individuals are willing to pay half a million dollars for a home now, then logic would dictate that they would continue to be willing for a superior house.

There are several methods of tackling this issue:

• Reducing the Cost of Housing
• Improving Income

Taking away the land market would cause a definite decrease in house prices but it also removes the ability to "invest" in housing. Real estate ends up being much like capital purchases, individuals will spend money like businesses construct offices because housing depreciates over time (rather than appreciate despite the decreasing quality of the structure). This would result in old housing becoming low in price and thus becoming regularly replaced by more modern housing.

The expected result is an increase in construction work, renovations and development. There can be several issues that mitigate the benefit. First is corruption in the construction industry. As a rule, there's no way to separate government interference and the construction industry because everyone requires getting permits to build anything. Remove those permits and you have significant urban planning and environmental problems. Then, really the solution is to reduce corruption. The best tools in this regard is transparency (publicly accessible records on the web for all construction, all bidding done openly on a publicly accessible website, an auditor general with a yearly report) and a public that cares.

Second, varying incomes of individuals during their life time may cause hardship later in life when they are still paying rent. Generally, people would have to lower the amount of rent they pay. Rent control and proper zoning would tend to create sufficient housing at a reasonable price (an aim to keep rent prices below 20% of income, or so). This requires good urban planning. It would be useful for government to produce an urban plan and for a standard statistics agency and budget office to produce the expected outcomes of that plan. Western democracies are at a point where it no longer needs to have government state projected numbers for plans because there is sufficient number of skilled individuals who can work in budget offices and statistic bureaus to produce all these numbers.

On the flip side of controlling house prices and pushing for continuous new construction (of higher and higher density structures as population increases), government can work to improve income. This is a broad topic not addressed here but essentially, generally attempting to improve the economy would alleviate land ownership problems.

• Eliminating land trade will free up money for housing quality and ownership
• Zoning to drive toward higher density in more contested areas
• Transparent construction bidding/permit granting process using new technologies (such as the Internet) to lower corruption

Matching Individuals with Desired Housing

Ideally, people would get the exact housing they desire. Practically, land is scarce and there may not necessarily be sufficient housing to provision it to all individuals who want it. It's important to note that free market for land is merely a way to decide how this housing is provisioned (an important consideration if someone is of the mindset of "but if you don't have a price, how much do you pay for the housing?", the question ignores the assumption of a premise: that housing needs floating price component).

Pushing for higher density housing in areas that are more contested would be a government policy. This would help to, over time, provide more housing for people who desire it. Normally, with a price system, locations that are more desirable (due to natural geography) would fetch a higher price. The higher price forces individuals with lower income to stop consideration those locations. It does not, however, as many seem to believe actually change the supply of housing. Whether housing costs ten times the material/labour cost or one time the material/labour cost, it is land owners who reap the benefits and they have no incentive to build additional housing with additional income.

Many individuals may not actually have a preference and care only about the quality of housing. Most natural geographic conditions only vary with proximity to water and nature preserves. All other artificial conditions (quality of school, rate of crime) are caused by pricing issues and should not exist in the first place. Putting price pressure to perpetuate the problems would be counter-productive.

But, how much free market is reasonable? Is it more pragmatic to have government construct housing? Historically, housing arrangement has always been somewhat government controlled but mostly with respect to land and not the actual housing. So then, is it more efficient to provision land via a government program or through a semi-free market?

If it was done through a government program, in order to match the objectives listed, then we should expect that provisioning is done by stated desire and then by socio-economic background of each family. The aim would be a fairly even distribution of the income ranges in an attempt to create greater class mobility.

• Drive higher density housing in more desired locations
• Provisioning land by desire and socio-economic status

Equally Distributing Social Services

Even in more socialist countries such as Sweden, neighbourhoods tend to have areas with richer social services and those with poorer social services. In the case of Sweden, all schools are equally funded initially but then additional local grants are provided and distributed by local government. That secondary distribution is uneven. In the case of Canada, schools receive local income from local government based on municipal taxes (property tax for instance) in addition to provincial funding. Provincial funding might be very equitable but obviously local tax income will not be so.

In the United States it is even worse. Though there is a state education budget, local taxes make up a much larger proportion of school income than it does in Canada, leading to significant differences in house prices. Buying the same quality of house in Palo Alto (California), due to school quality, will be nearly triple or quadruple the price of a home in north Waterloo (Ontario). Yet, the school quality in Waterloo is not inferior to that in Palo Alto because of superior government policy. Palo Alto is not waterfront property, it is not a pristine beach, it is not near some magical nature preserve. In fact, it's pretty crappy land near a bit of marsh. On the other hand, north Waterloo is near open fields, forests and a slow flowing river. So, we can see that artificial environmental conditions cause just as much price fluctuation as natural ones but there is one difference: we can control artificial conditions.

What is there to do? One of the primary solutions is evolution of power versus devolution of power. That is, we move tax income up to the state/provincial level and then redistribute based on local cost of living and per capita equalisation. That is, a person living in Cupertino (California) would receive the same school funding per capita (adjusted for cost of living) as someone in San Francisco. The greater expectation is that funding difference due to cost of living is specifically due to issues with remoteness, transportation costs and economy of scale due to population density.

To believe that "location" is a set of factors outside the control of a democratic population is to ignore the power that people wield. Government is there to do a job for the people, to make their lives better, not to sit and watch and ensure the "free market" exists. The free market is a tool used to make lives better and if there is a better tool then it should be used. Unequal funding of schools is not acceptable. Class mobility is an important aspect of the American economic system.

• Equalise funding of schools, roads, police through state/provincial level funding
• Preferable to have a digital public online accounting book for funding per school, funding for roads in an area and so on (some places may have already implemented this)

Avoiding Economic or Social segregation

One of the effects of free market price of land is that it necessarily provisions housing accord to income/wealth strata (more the latter than the former). This means the creation of neighbourhoods of specific wealth levels. Economic segregation of this nature leads to differing crime rates, higher level of corruption in the government (it's easier to identify rich neighbourhoods to focus political efforts on) and other social problems that manifest itself in the long term as a decrease in social mobility and the entrenchment of poverty.

There are a number of tactics to alleviate this issue in a "fair" manner.

The government could sprinkle different quality of housing in the same neighbourhood to allow people of different wealth strata to coexist in close proximity. Then policing resources, education funding and infrastructure building would have to be spread evenly as there is no specific location for political capital to be focused upon.

The government could institute price controls, or specifically, rent control. Keeping rent in line with mortgage rates for buildings keeps prices stable. Profit for landlords then becomes a question of quantity of housing. With rent control they can only increase profit by providing more housing rather than providing the same and charging a higher price. Without rent control, the incentive is to price rent as high as possible until people can no longer afford to live. However, rent control must be instituted in wide areas, such as at the county scale.

The government could change permit grants. Specifically, as house prices start moving upward, zoning laws should shift to start including the construction of higher density housing. Many price issues in the United States arise simply due to enforced low density housing to keep a certain "style" in a city. That is an admirable goal, but it is problematic if rent prices increase to the point, as they are now in San Francisco, to be one of the highest in the world for housing quality comparable to that of places for a tenth the price. It is not as if incomes have gone up similarly so the only result is pricing out the poor from having housing.

Land could be provisioned on a multi-slot basis. There are a specific number of slots for each type of wealth strata (it's a fuzzy line between any strata of course, a public algorithm may be helpful, or perhaps a public application system). Any particular neighbourhood cannot "tip" into a specific wealth strata. The algorithm should take into account the monthly changing economic structure of the population (such as a growing number of upper middle class, as a percentage of the population, means any specific area can have more of them). Of course, the provisioning should be blind to the usual list of characteristics (skin colour, religion, etc). That normally should be obvious but as single ethnic neighbourhoods still exist for reasons due to social exclusion, it should still be a consideration in government policy.

• Mixed neighbourhoods of varying house quality levels
• Rent control and zoning as a combination policy to keep price levels low
• Provisioning housing based on socio-economic status to keep neighbourhoods mixed

Overall Policy

So what is the incomplete list of ideas?

• Eliminating land trade will free up money for housing quality and ownership
• Zoning to drive toward higher density in more contested areas
• Transparent construction bidding/permit granting process using new technologies (such as the Internet) to lower corruption
• Drive higher density housing in more desired locations
• Provisioning land by desire and socio-economic status
• Equalise funding of schools, roads, police through state/provincial level funding
• Preferable to have a digital public online accounting book for funding per school, funding for roads in an area and so on (some places may have already implemented this)
• Mixed neighbourhoods of varying house quality levels
• Rent control and zoning as a combination policy to keep price levels low

There are probably more policies to throw into this package, land is a contentious issue. It has been one of the largest factors causing the decline of many previous empires. Free markets for land typically brought about their downfall, so it would be wise to ensure that land ownership does not result in the same problems for the United States.

In the modern world these problems are mitigated for the United States because it is a young country and thus has a lot of open free space. Three hundred million people may seem like a lot for a population, but picture that China, of somewhat smaller size than the United States, has 1.3 billion inhabitants. Suddenly, three hundred million sounds like a lot of free space. Land issues arise when it becomes more scarce.

Also heavily mitigating the issue is that land is not the primary wealth generator today than it was just a few centuries ago. So then, super-landowners aren't as much of an issue as they would have been when agricultural income made up the vast proportion of national gross domestic product.

Rationale

Living location is a sticky issue. Individuals don't simply choose to say that today they will live in New York City and tomorrow they will live in Chicago and the next day they will live in Seattle. A person's living location is a function of the property they desire, the location of their job and the wealth they have at their disposal to use for moving expenses. Those are, at the least, some of the large factors that affect living location.

So, living location is a matter of choice of small variations. Whether to live in one neighbourhood or another two streets away. It is not a matter of "New York City rent is high, I will move to Dallas". And will your family move with you? Your relatives? Your job? No, they will not. So it is not a decision one can simply make. But, free market for housing makes that exact assumption.

However, if price simply reflected material/labour cost, that is fair. Material costs usually varies only by transportation costs. Labour does not vary much either. And, you are paying for the quality of the house. That is expected, at some point, someone must pay for this. You can ignore land prices but you cannot ignore construction prices.

Most people, especially in lower wealth strata, never move far from where they are born. They simply don't have the wealth. So to state that they should choose to live somewhere cheaper ignores... everything. If someone is in the tech industry there's really only a few cities to choose to live within. You cannot choose to live in Hamilton (Ontario) and expect that you will have a job magically.

Of a more pragmatic nature, there is the issue of "relative" and "absolute" prices. When land is no longer a consideration in price it is somewhat "unfair" that someone living in the middle of a desert out in Nevada pays the same price for the same quality of housing as someone in prime real estate in the middle of San Francisco. The keyword is "unfair" because the relative price difference of the two locations is zero.

However, what of the absolute prices under free market? The desert location would be (for instance) ten times cheaper than the prime real estate in San Francisco. That is "fair". But what are the actual prices under the free market system versus that of the semi-free market system (the material/labour cost is still free market)? Without land in the price, prices would drop. Or, people are willing to pay up more money and thus acquire higher quality housing in prime locations and so housing quality rises in both the desert and the prime real estate. So, does it matter?

A good analogy would be healthcare. A mid-range US healthcare plan costs 7000 for a single individual. A plan comparable to that of any Canadian healthcare government plan costs in the range of 12000-15000 depending on the state. Canadian healthcare plan costs on average 2300 for the government and another 500 for private spending. So we'll say that it is $12000 (USD) vs $2800 (CAD, which at the time of this writing is worth slightly more than USD). But the Canadian healthcare plan is unfair. No matter your risk factor, age and such, it still costs $2800. But, obviously, it is four times less the cost for the same quality. So, does the relative price unfairness really matter?

Although it might seem like a question of "end justifies the means", it's not quite so. It's hardly diabolical to ask people "do you wish to pay the same but much lower price?". People are suffering less due to the means and suffering less due to the accomplished ends. It is superior in all ways.

Tools

A website for transparent and public tracking of construction bidding, permit granting to create a paper trail for auditing (either by the media or an auditor general).

Tracking house prices and rent relative to local income. Preferably detail down to the neighbourhood (aggregated data to avoid personal information leak).

Tracking home ownership levels and amount of housing owned per capita.

Website to track housing availability, showing housing acquired and wealth strata distribution per neighbourhood.

Online tracking of state/provincial budget, with detail down to the funding of each school. Preferable, but obviously would take time to create an automated system for this.